Will supply chain problems ever subside?
RBC Capital Markets recently provided insight on the topic in its report titled Digital Intelligence Strategy: Supply Chain Woes, No End in Sight.
RBC’S OUTLOOK FOR SUPPLY CHAIN ISSUES
U.S. household savings rates and insatiable consumer demand are driving supply-chain constraints, according to Nik Modi, analyst at RBC. With that, the RBC report notes that if consumer demand strength persists, the backlog will never clear.
“Demand simply remains too strong and continues to tax the system,” wrote Modi. “If consumption remains elevated in perpetuity, the Ports of Los Angeles and Long Beach will never fully clear the logistical hurdles required to de-bottleneck the supply chain, barring any large infrastructure investments.”
In addition to the ongoing truckdriver shortage, the rise of the omicron variant created new challenges for CPG companies this year, particularly on the manufacturing and transportation sides with labor shortages being exacerbated by widespread illness, according to Modi.
“We expect continued disruptions to the supply chains driven by illness in the labor force, especially as the new CDC guidance may not be of much help in areas with lower vaccination rates or demographics with comorbidities likely to result in prolonged and more severe illness,” he wrote in the report.
WHEN MIGHT PROBLEMS SUBSIDE?
The logistical trifecta to untangle the congestion would have to include:
- A significant rebound in longshore workers and port employees
- Economic incentives for clearing the deck of sitting containers
- The seasonality factor of moving through the Christmas rush should put the directional path toward normalization on the horizon, at least compared to this past fall.
Instead, RBC says these directional arrows of progress are simply dwarfed by demand, and port congestion continues to grow. Additionally, taking a consumer spending approach suggests that personal expenditures would have to decrease by 15% every month for 10 months.
Given the strength of the average U.S. household balance sheet, it is difficult to see near-term reprieve unless the consumer shifts significantly and cannibalizes goods spending with services, the report said.
(Editor’s note: For more information on the supply chain in 2022, sign up for FI’s Jan. 27 webinar: Navigating the Supply Chain Crisis in 2022. Those who cannot attend but register will be sent a recording of the presentation.)